Trading in Mosaic (symbol MOS) was very active Friday, with trading volume over 27 million shares in a name that averages only 7.9 million shares per day.  The activity was sparked by rumors that Brazilian mining firm Vale was considering a buyout of Mosaic.  The shares were up substantially, and briefly touched $54.36, before settling at the end of the day to $49.56.

Option activity in Mosaic was just as hectic, as can be seen from a snapshot of Friday’s chain below.

mosaic-options-volume

While its not possible to know exactly who exercised which strategy, it is clear that there was a lot of activity, and the bulk of the activity was on the upside call side.    August calls from the 50 strike all the way to the 80 strike had option volume exceeding the total open interest, and in some cases at over 7:1 – the August 70 strikes.  Some possibilities are the following:

  • A large strangle trade (~13,000 contracts) in the August 50 CALL / August 45 PUT combination
  • Large upside directional CALL plays in the August contracts between the 55 and 70 strikes

Note that since Friday’s close, more news has come out about the rumored buyout.  FromYahoo Finance on Saturday:

Brazilian mining giant Vale says it is not interested in acquiring fertilizer companies, denying a recent press report that it was eyeing potash and fertilizer producer Mosaic Co. of the United States.

It will be interesting to see where Mosaic opens on Monday.  But if the shares take a big dip based on the rumor denial, all those upside call buyers could get washed out.  The 13,000 unit strangle player on the other hand, could fare much better.  His expiration day low end breakeven point is roughly $38.80 (45 – 2.20 – 4).  With so much time premium left before August expiration, his breakeven point would be quite a bit higher.  Depending on where the shares open tomorrow, he may already be in the money.

Disclosure: Current positions in Mosaic.